Financial Statements of the Government of New Zealand for the Three Months Ended 30 September 2014

7 Nov 2014

Paul Helm, Chief Government Accountant

The Financial Statements of the Government of New Zealand for the three months ended 30 September 2014 were released by the Treasury today. These statements are compared against forecasts based on the Budget Economic and Fiscal Update(BEFU 14) released on 15 May 2014.

The operating balance before gains and losses (OBEGAL) was in deficit by $725 million, which was $79 million more than forecast. Core Crown expenses of $18.1 billion were 0.7% more than forecast and core Crown tax revenue of $15.5 billion was 0.5% more than forecast.

Core Crown tax revenue was $1.2 billion or 8.3% higher than in the year-earlier three month period, which reflected positive macroeconomic conditions leading to growth largely in source deductions, corporate tax and GST. For the latest three month period the result was $73 million more than forecast with both other individuals and corporate tax being more than expected ($79 million and $135 million respectively). Offsetting these positive variances, GST was less than forecast by $175 million, reflecting lower than forecast domestic consumption growth.

Core Crown expenses were $123 million or 0.7% higher than forecast at $18.1 billion. The primary reason for the variance was the Crown’s signing of a $103 million Deed of Indemnity in regards to Solid Energy. The costs associated with the indemnity do not impact OBEGAL, however, as both entities are within the Government Reporting Entity.

The operating balance (including gains and losses) was in deficit by $831 million, this was $883 million lower than the surplus forecast. Continued strength in equity markets saw gains recorded on financial instruments of $1.1 billion, which was $0.5 billion ahead of forecast. However, these gains were not enough to offset the actuarial losses on the ACC liability of $1.2 billion, resulting from changes in short term discount rates.

The core Crown residual cash deficitwas $2.6 billion, $253 million more than forecast due to higher than forecast personnel and operating payments, partly offset by higher than forecast tax receipts and lower than forecast capital spending. The higher cash deficit flowed through to core Crown net debt which stood at $62.6 billion, equal to 27.3% of GDP. At 30 September, total Crown assets were valued at $258.5 billion and liabilities were $178.6 billion and the Crown’s share of net worth stood at $74.7 billion.

Due to the general election’s close proximity to the Budget Update forecasts this year, the process for preparing the fiscal forecasts in the Pre-Election Economic and Fiscal Update (PREFU) was slightly truncated and full monthly forecasts were not prepared. The September financial statements are largely compared, therefore, against forecasts based on the BEFU 14, although they do provide an indication of overall results compared to PREFU where appropriate.

When compared against the PREFU, core Crown tax revenue was $287 million higher than forecast. As the lower domestic consumption affecting GST was already factored into the PREFU tax forecasts, the positive variance reflected the strength within the corporate and other individuals taxes, as discussed above. As a result, the OBEGAL deficit was slightly smaller at 30 September than was expected in PREFU.

Year to date

Full Year

$ million

September2014Actual1

September
2014
BEFU 14Forecast1

Variance
to BEFU 14$m

Variance
to BEFU 14%

June
2015
BEFUForecast2

June
2015
PREFU
Forecast3

Core Crown

Core Crown tax revenue

15,547

15,474

73

0.5

66,442

66,157

Core Crown revenue

16,985

16,974

11

0.1

72,537

72,213

Core Crown expenses

18,058

17,935

(123)

(0.7)

73,107

72,826

Core Crown residual cash

(2,558)

(2,305)

(253)

(11.0)

(4,306)

(4,596)

Gross debt4

85,209

83,131

(2,078)

(2.5)

79,834

81,002

as a percentage of GDP

37.2%

36.3%

33.1%

33.7%

Net debt5

62,634

62,069

(565)

(0.9)

63,567

64,275

as a percentage of GDP

27.3%

27.1%

26.4%

26.8%

Total Crown

Operating balance before gains and losses

(725)

(646)

(79)

(12.2)

372

297

Operating balance

(831)

52

(883)

(1,698.1)

3,102

2,983

Net worth attributable to the Crown

74,724

70,206

4,518

6.4

73,115

77,367

Using GDP for the year ended 30 June 2014 of $229,145 million (Source: Statistics New Zealand).

Using forecast GDP for the year ended 30 June 2015 of $241,090 million (Source: Treasury).

Using forecast GDP for the year ended 30 June 2015 of $240,199 million (Source: Treasury).